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Those 'gurus' just won't stop playing fool's game

The Lowell Sun

Posted:
04/06/2013 11:17:15 PM EDT

By Marty Krikorian

Every January it is customary for stock market gurus to make forecasts as to where they think the market will go in the next 12 months. However, since the Dow Jones Industrial Average closed at an all time record high of 14,253.77 on March 5, the prognosticators have been out in full force with their predictions for the remainder of the year.

The following are a few examples:

* "6 reasons to bet on a big bull market 2013" -- Kiplinger

* "Stock market will blindside investors in 2013" -- Market Watch

* "Bull market will take off in 2013" -- The Street

* "Prepare for stock market crash 2013" -- Market Oracle

A CNN Money survey of 30 investment strategists and money managers provided their stock market returns for 2013. Their predictions range from losing as much as 16 percent to gaining as much as 25 percent. That's a difference of more than 40 percent.

How can this be? If all these experts supposedly know what the market is going to do, shouldn't they all be saying (approximately) the same thing?

In a previous column, I discussed how the CXO Advisory Group tracked more than 6,000 predictions made by 68 so-called "stock market experts" from 2005-12. Most of these gurus made forecasts that were frequently so wrong they would have needed a financial bailout if they actually invested their own money in their predictions.

Gurus include such famous names as Jim Cramer, Abby Joseph Cohen, Marc Faber and Bob Brinker.

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As a group, CXO calculated the overall accuracy was worse than the proverbial flip of a coin -- just under 47 percent.

As I have stated for more than 10 years in this column, I am no fan of the investment gurus, prophets, talking heads and financial columnists who make such predictions. Much of the information these false prophets provide to the investing public is everything that is wrong about managing money. There is no other industry where someone can give wrong advice over and over and still be called an expert.

The truth is that nobody knows if the stock market will go up or down tomorrow, next week, next month or next year.

Making investment decisions based on the opinions and predictions of the talking heads in the financial media is a recipe for financial disaster rather than financial security. There are literally thousands of unknown and unexpected events that that will drive stock prices up or down from one day to the next, and short of getting tomorrow's Wall Street Journal delivered today, no one knows what those events are going to be. Even the world's greatest investor admits he has no idea what the market is going to do:

"Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month, or a year from now."

-- Warren Buffett; CEO of Berkshire Hathaway

Despite overwhelming evidence that the market is not predictable, many investors believe there are gurus and experts who can predict the market with their sophisticated analysis and insights. If you choose to invest your retirement savings based on hunches, it is possible to generate considerable gains -- after all, some people have gotten rich buying lottery tickets. But contrary to what investors have been lead to believe, successful investing does not require the ability to predict the future.

A more prudent approach is to hold a diversified portfolio. Diversifying your portfolio across a number of different investments and asset classes can help take the guesswork out of which investments are going to perform well over different time periods and market conditions.

In hindsight, it's easy to look back and say, "I should have sold out of the stock market before it started going down." But no one can predict when the market will reach -- or has reached -- a bottom or a peak.

The bottom line is that investing is about achieving financial goals. Predictions are about ego gratification. Investors who wish to succeed must find investment strategies and techniques that do not rely on predictions.

Martin Krikorian is president of Capital Wealth Management, a registered investment adviser providing "fee-only" investment management services located at 9 Billerica Road, Chelmsford. He can be reached at (978) 244-9254, through Capital Wealth Management's website at www.capitalwealthmngt.com or via email at, info@capitalwealthmngt.com.